Beware of Clients Bearing Cash Gifts

In another signal that brokers risk impairing their livelihood for failing to follow their firm’s internal policies, the Financial Industry Regulatory Authority has suspended for a year a former Merrill Lynch broker who allegedly lied to the firm about accepting money from clients and fined him $10,000.

Adam C. Smith, who had worked at Merrill’s Rogers, Arkansas, office for more than 10 years before he was discharged in May, accepted checks totaling $105,000 over a three-year period from a married couple who were clients in violation of Merrill’s ban on policies, Finra said in a consent order posted Tuesday on its enforcement website. When confronted with the allegations, he allegedly denied taking the money.

While Smith’s actions clearly violated the firm’s rules, the regulator failed to provide sufficient context in its order for its determination that he violated Finra Rule 2010 requiring brokers to uphold “high standards of commercial honor and just and equitable principles of trade” by violating Merrill’s pollicies, said Bill Singer, a plaintiff’s lawyer who writes a blog that focuses on the lack of clarity in Finra’s enforcement and arbitration decisions.

In the 13-line “facts” narrative of the order, which Smith accepted without admitting or denying the findings, the regulator said that he and his wife accepted $79,000 from a husband and wife between October 2010 and the end of 2013 to be used for the education of their children. Smith had worked with the couple since 2006, it said.

Finra noted that one member of the couple died during the period but failed to identify their relationship to the Smiths or the origin or use of the additional $26,000 that they allegedly accepted.

“How can you only put down 13 lines of explanation when you are taking away this man’s career for one year and giving him a fine,” Singer said.

While the penalty against Smith didn’t come close to the lifetime ban Finra recently imposed on a Wells Fargo broker for cheating his firm on garage fees, adding context such as whether the gifts came from relatives could help other brokers and lawyers guide their behavior and potential settlement negotiations, Singer said.

Merrill discharged Smith in May 2016, almost two-and-a-half years after he allegedly last received checks from the couple, according to the consent letter. His says only that he was let go over allegations that he knew about “a family member receiving gifts from a client.”

Joseph Boskus, the manager of Merrill’s Rogers branch, did not respond to a request for comment.

Smith first registered as a broker with Merrill Lynch in November 2002, according to his BrokerCheck history, worked for less than a year during 2004 at Banc of America Investment Services, and rejoined Merrill in Arkansas in January 2005.